VC Perspectives from a Former Entrepreneur – Jeff Bussgang

Navigation

Monthly Archives: July 2010

You hear this word thrown out frequently in business conversations. It is a wonderful thing to aspire to, but very hard to achieve. Perhaps even harder to achieve in entrepreneurial settings between the venture capitalist and the entrepreneur, where the stakes are so high and the ever-present risk of dysfunctional behavior leading to a "Start-Up Soap Opera".

Ever since I began the research for my book, I have been spending time thinking about why VC-entrepreneur alignment is so elusive. And so when the Kauffman Foundation asked me to give a presentation to their recent class of young VCs, I decided to take the opportunity to develop a few thoughts that teed up the key issues.

In short, I concluded that despite all the aspirational rhetoric about VCs becoming more "entrepreneur-friendly", there are structural reasons why VCs and entrepreneurs are not always aligned. In negotiating term sheets, performing the inside-outside financing dance, discussing exit scenarios – and many other elements of the start-up journey - misalignment between VCs and entrepreneurs is common, natural and inevitable.

VCs and entrepreneurs have a hard time dealing with these areas of misalignment because they are human beings. And like nearly all human beings, they have a hard time facing conflict dead on. Conflict makes us uncomfortable. No one wants to be the "bad guy/gal" and so try to gloss over real differences or sweep them under the rug.

I argue instead that VCs and entrepreneurs should explicitly acknowledge these areas of misalignment and talk about them openly and directly. Only by naming these points of conflict and appreciating the other side's point of view, can you really begin to develop the solutions to these points of conflict. As Mark Pincus of Zynga told me when I interviewed him for Mastering the VC Game, "Don't be a victim. Don't look at the [conflicts and drama] personally, look at them structurally."

Anyway, here's the presentation I gave the Kauffman folks the other day that laid some of these issues out. I still consider it a work in process (like everything I do!), so let me know what you think.

Like this:

There's a famous moment in 1970s television sitcom lore when the super-popular "Happy Days" lost its mojo. That moment is when the main character and hero, Arthur Fonzarelli ("The Fonze"), performs the improbable water-ski trick of jumping over a shark. Now, I'm an avid water-skiier, and I've been known to jump a Loon or two, but jumping over a shark is so absurd its laughable. The video clip, which I embed below, underscores how ridiculous the feat is with Fonzie still in his (dry) leather jacket.

In the common vernacular, "jump the shark" has come to symbolize that moment when something or someone has peaked and where the over-exposure gets to the point where it's all downhill from here.

I am beginning to wonder if Apple has jumped the shark.

First, they pass Microsoft in market capitalization to become the most valuable technology company in the world. Then they purchase Quattro Wireless to enter into the advertising business, attempting to box out Google. Then they launch the iPhone 4 a mere few months after the iPad. Both are heralded as the most successful product launches in the history of technology.

But in the last few weeks, there have been a few signs that perhaps they have peaked and come to their "jump the shark" moment. Here are few signs that stand out:

Perhaps more worrying for Apple is Google's declaration of war and the success of Android. Apple and Google are competing for the hearts of developers and advertisers as well as consumers, and the battle appears to be tilting. Many commentators are ironically observing that Android may be to the iPhone what Microsoft Windows was to the Mac – an open platform that simply wins over time on volume because of its superior ecosystem.

Many people forget that Google acquired Android in 2005 – even before the iPhone was launched. Google has been working on developing a dominant position as the open platform for mobile computing for many years, probably not even knowing that Apple would be their main rival (more likely Microsoft, in fact). So it should not be such a surprise when people begin to recognize that Android is really working. According to Quantcast, Android has 21% market share in June for smart phones as compared to Apple's 58%. The Android numbers are growing fast, and this is just US figures. Android arguably has already established a superior position in the international market given their breadth of OEM and carrier partners.

What has struck me most recently are the conversations I'm having with entrepreneurs and industry leaders about Apple. Yesterday a mobile start-up CEO told me that when Apple declared that they would block app vendors from collecting device data to use for personalization and targeted advertising, he decided to pivot his start-up to focus solely on Android. Android app numbers have been widely reported this week as growing remarkably fast and Android app usage is growing faster than Apple.

The president of a mobile advertising agency told me last week that he believes Google/Android will win the battle because it represents the more effective, and better-known, advertising targeting paradigm – search-based vs. apps-based. The debate here is whether better targeted advertising will be based on what applications I'm using (and what songs I'm listening to on iTunes), which is what Apple is betting on, or will better targeted advertising be driven from search. If Google succeeds in leveraging mobile search data on devices to inform mobile advertising within apps, it will be very powerful and both advertisers and publishers will flock their way.

A possible Trojan Horse in the mobile platform wars is HTML5. Apple was quick to push HTML5 as a new standard on the iPhone over Flash, perhaps out of genuine frustration with what Steve Jobs refers to as a "buggy battery hog". But in promoting HTML5, Jobs may be inadvertently encouraging developers to build cross-platform applications that are elegantly dynamic and browser-based rather than app-based. If Android continues to get momentum, and HTML5 continues to gain in popularity, it might behoove application vendors to develop broswer-based applications that run cross-platform rather than silo'd iPhone apps. Search-based targeting. Browser-based apps built in an open, cross-platform environment. Guess who wins that battle in the long run? Strategy 101 says the arena in which you choose to battle a competitor is as important as how you conduct the battle. Apple has chosen HTML5, an open platform, to battle Google for supremacy on mobile. This seems like an unwise choice for Apple in retrospect.

Apple has called a special press conference tomorrow, most likely to address the antenna issue for the iPhone 4. Watch the body language carefully. If it's defensive, closed and full of denial, you may be seeing another sign that Apple has jumped the shark. That doesn't mean the company will decline quickly – after all, Happy Days continued for 7 more years after that ridiculous episode. It just means the summer of 2010 will be remembered as the moment Apple peaked.